Yesterday, the IFPI announced that global recorded-music revenues grew by 5.9% to $15.7bn in 2016. The body held a press conference with representatives from all three major labels sharing their views on the growth.
After the event, Music Ally spoke to all three to dig a little more into the key trends of 2016, and what they mean for the music industry in 2017 and beyond.
Here’s what Michael Nash, EVP of digital strategy at Universal Music Group; Dennis Kooker, president of global digital business and US sales at Sony Music; and Stu Bergen, CEO of international and global commercial services at Warner Music Group had to say.
Subscriber numbers effectively doubled in the past year (from 68m to 112m) but streaming revenue only grew by 60.4%. Why was that?
Bergen: Subscriptions in every market are not necessarily priced in the same way as a consumer offering. Some of the growth has come from lower absolute-value markets. The 112m number in the report is also reflective of the extra members on family plans.
Nash: There are different methodologies behind the different numbers and we have to sit down and break them down. The report goes into the changes – whether they are subscribers or subscription plans – and there was an adjustment that was made to take one service out of the number last year to bring the number down. I am confident on the methodologies around the different numbers. If you look at subscription plans versus subscribers, for example, under a family plan you might have a slightly different ARPU on a per-consumer basis. We are confident that the baseline metrics around ARPU are very solid. But the different numbers answer different questions about what you are counting.
Is this going to cause a new type of subscription-centric value gap whereby user numbers grow but total revenue is not moving in lockstep?
Kooker: It’s a complicated answer. When you look at it, it’s what makes the ARPU when the services continue to expand and there are different offerings globally with different pricing. One of the factors playing into this is definitely the expansion of emerging markets – which bring the ARPU down. Student discount plans have been very successful, which is a good thing. Getting students to pay for stuff is a really good thing. But the discount brings the ARPU of the overall subscriber base down. These are some of the things that factor in here. The ARPU might not be growing at the same rate, but it absolutely is a positive development for the business and the industry overall. We are opening up markets we never had before and we are getting students to pay that we weren’t getting to pay before – so overall it is very positive.
Nash: It’s all growth – but it might mean you have a different ARPU to multiply. If you see a lot of growth in a market like, for example, China year over year, that is a market where you obviously have lower subscriber ARPU than you do in, say, the UK. Those are some of the variations – but it is obviously not a bad thing. It just means that the global ARPU is going to look different as you see developing markets come online.
Bergen: Physical pricing is variable around the world as well. It’s more reflective of the ability to get extra value for artists out of the market.
Will the two-week window on Spotify (whereby subscribers will get new albums a fortnight before free users) have any real impact given that Fridays are already bursting with new releases?
Nash: It is very important to have the flexibility to treat different projects differently. There are major artists who have gone on record preferring to go premium when they release a new album. Obviously for our artists where the choice is to launch on premium, it gives us the flexibility to be able to address their needs. It allows the labels and the marketers working with the artist managers to come up with the right approach. The flexibility of the optionality is the bigger story. It’s not so much how it’s going to be applied in given cases – it’s that it can be applied when it’s appropriate.
Kooker: Content playing a part in the differentiation between that free experience and a paid experience – I think it’s important. Is two weeks the right number? I don’t know as we’ve not really tested it at scale in the marketplace.
Is the global release day (whereby everything comes out on a Friday) at risk of becoming a Pyrrhic victory for labels and artists as there’s an increasing signal-to-noise problem and albums get drowned out?
Nash: That’s a question about the needle in the haystack problem with the explosion of new releases because of the elimination of barriers of access to the marketplace. That is a significant role that the major music company plays in partnership with the artist to create the level of attention and visible exposure. Our labels are constantly innovating to come up with new, exciting, sexy ways to create interest and to activate the fanbases for the new releases long before we actually hit the point of release and then do creative things around release. You are going to see more and more of that as a requirement. For me, it doesn’t so much come down to the issue of the two-week window and [saying] yes or no [to it]. That’s just one factor in a sea of factors that represents the complexity associated with bringing new products to market.
Kooker: I don’t think it’s because of a global release date. I still think the global release date was a positive development for the industry. Whether we have a global release date or not, we were still going to have that [signal to noise] issue. There are now more releases per week probably than ever in the history of music. But what it does highlight to me – and one of the things that is incredibly important from our standpoint – is that there are different levels of releases and different levels of artists and ambition. We have to help the artist be able to cut through in order to get attention. That is part of the investment that we make as a record company. It’s investing to be able to cut through and get the attention for the artists.
Much of the IFPI report this year, as in recent years, was on the value gap issue which is, of course, a euphemism for YouTube. Facebook has clear ambitions for music this year. Are we at risk of history repeating itself here – first as tragedy and then as farce?
Bergen: I hope not. We would like a free-market negotiation – a seller and buyer negotiation – where licensed content is made available on the service. I can’t give any deal terms yet.
Nash: I cannot comment on any specific discussions. We are generally positive and hopeful that Facebook can enter into a relationship with music companies where they are identifying content, filtering content, implementing rights management and monetising content. That is our hope.
Kooker: Obviously the potential with the reach of Facebook is tremendous. Whether or not they are serious about music to me is a still a big question mark. I don’t know that for certain and I certainly haven’t seen any plans at this point that would lead us to believe that. It is a balancing act. What we don’t want to do is have a situation where we have poorly monetised ad-supported tiers that are not promoting the growth of paid subscription. For me it is not ad-supported versus paid; it’s ad-supported that leads to paid. To be optimistic, I think there is tremendous potential there. But at the same time, we have got to be cautious to not get that balance wrong.
Is it time to put the download out of its misery and, hopefully, accelerate the migration of consumers to streaming?
Kooker: If that is the case, we will only know that in hindsight. I don’t think anyone who went into the download business was thinking of it as a transition format because streaming wasn’t really in the foresight at that point. What we are seeing is that the download business is declining. I think that is probably going to continue. But to suggest putting a bullet in its head to me makes no sense. Ultimately what we are interested in is giving the consumer the music experience they are looking for. Look at physical as an example. It is still 50% of the global business. For us, we are not going to kill a format before the consumer is no longer interested in it. Ultimately the answer to your question is going to be driven by the consumer.
Was Ed Sheeran taking over the UK top 20 the week his album came out proof the charts are broken?
Bergen: What purpose the charts serve is constantly reevaluated and discussed. He took over the top 20 [in the UK] as that is the methodology that was used for the chart and the rampant consumption of a spectacular album by a popular artist was reflected there. If you feel that the rules are not serving their purpose, you change them after the game – you don’t change them during. It already happens in Sweden a few times a year and also happened in the Netherlands with a local hip-hop act recently.
Universal said it is no longer doing service exclusives. Warner said it never really did them. What is Sony’s stance here? Are they now going to be consigned to the scrapheap?
Kooker: It is a balancing act. As an overall commercial policy, competition is good. For most of our artists, having a release across the market is incredibly important. We never say never. We are in the artist business. If it makes sense for an artist to do something different, we will consider that as part of our strategy around a release.